Akademik Veri Yönetim Sistemi
INTERNATIONAL JOURNAL OF ECONOMIC THEORY, cilt.12, sa.3, ss.257-277, 2016 (SSCI)
Estimates on the effect of job contact method (i.e., informal versus formal search) on wage offers vary considerably across studies, with some finding a positive correlation between getting help from informal connections and obtaining highly paid jobs, while others finding a negative one. In this paper, I investigate theoretically the sources of discrepancies in these empirical results. Using a formal job search framework, I derive an equilibrium wage distribution which reveals that informal search yields for some groups higher and for some others lower wages than formal search. The key result is the existence of non-monotonicities in wage offers. Two potential sources of these non-monotonicities exist: peer effects and unobserved worker heterogeneity in terms of the inherent cost of maintaining connections within a productive informal network. The model predicts that a greater degree of unobserved heterogeneity tilts the estimates toward producing a positive correlation between informal search and higher wages, whereas stronger peer influences tend to yield a negative correlation. This conclusion informs the empirical research in the sense that identification of the true correlation between job contact methods and wage offers requires a careful assessment of the unobserved heterogeneity and peer influences in the relevant sample.